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Computation of goodwill

Pooja (Student) (62 Points)

13 March 2013

Please do inform me why is half revenue profit considered for the calculation of average capital employed while the computation of goodwill??

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(Guest)

As per my knowledge,

If the capital employed in the beginning of the year is not given,average capital can be ascertained by deducting half of the profits of the year from the capital employed at the end of the year

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Pooja (Student) (62 Points)
Replied 13 March 2013

Yeah! I actually want to know why is half of the profit considered? Is there any reason behind this concept??

CA Saroj Kumar (Keen to learn something new every moments) (2588 Points)
Replied 13 March 2013

No there is no specific reason behind this logic it is simply when we have to caluclate Average figure then we should at leat two figure or more. Hence there is same logic when there is no opening value is given then we can provide the 1/2 of the curent so it can get average automatically.

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